Localism Bill

Lord McKenzie of Luton Excerpts

Tuesday 28th June 2011 Lords Chamber

Moved by

[Lord McKenzie of Luton]

118A: Clause 39, page 35, line 35, after “tax” insert “or non-domestic rates”

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[Lord McKenzie of Luton]

My Lords, I shall also speak to the other two amendments in the group. These are probing amendments, at this stage. We are on record as supporting the thrust of these provisions. They would allow local authorities complete discretion to offer business rate discounts to other hereditaments of their choosing, in particular to support businesses. However, the cost of these discounts will be met, one way or another, by the local authority. Under existing arrangements, the local authority can provide discretionary rate relief in a number of restricted circumstances—for example, by topping up the 80 per cent mandatory relief given to charities and providing 100 per cent relief to other non-profit-making bodies. The cost of existing discretionary rate relief is shared between the local authority and central government.

My first question to the Minister is: whether or not a local authority uses the opportunity to offer discretionary relief, will the cost of ongoing relief to existing types of hereditaments be shared on the same basis as now—partly by central government and partly by the local authority? Is there any change to that regime? Clearly, there will be little appetite for any new discretion, given that the costs will in effect have to fall on council tax payers, with referendums constraining council tax increases.

This leads to our first amendment. The relief can be granted when the billing authority is satisfied that it is reasonable to do so, having regard to the interests of persons liable to pay council tax set by the authority. However, we know that the Government are considering localisation of the business rate, which was discussed in the amendment we considered before the dinner break, and that a resource review is under way. If another potential source of income were to come about, with another group of peoples’ interests to consider, would that be one of the factors to be taken into account, or are the Government saying that those people can be ignored for these purposes?

The second amendment seeks only clarification—although I accept that it relates to a pre-existing form of words—of what is included in the definition of “fine arts”. This is relevant for the purposes of identifying who is eligible for discretionary relief. In the Bill, non-profit-making bodies include:

“each of whose main objects are charitable or are otherwise philanthropic or religious or concerned with education, social welfare, science, literature or the fine arts”.

Having read that, I was genuinely unclear as to the dividing line between fine arts and other arts. The House of Lords Library helped a little and referred me to Stroud’s Judicial Dictionary of Words and Phrases. It refers to a judge, who said at one stage:

“I am prepared to accept the wider meaning assigned to the ‘fine arts’ in the definitions and to treat them as including, for example, poetry, eloquence and music, as well as such ‘arts of design’ as painting, sculpture and architecture. We are indeed bound for the present purposes to include music amongst them. It is possible that dramatic art should also be included”.

However, can the Minister help with perhaps a more contemporary definition? I am aware that his noble friend Lord Taylor has a very keen and current interest in carnival arts, for example. Would that be included? This might seem a somewhat frivolous point, but there is a real issue about why the word “fine” is attached to the arts here. Perhaps the Minister can help me on that.

Our third amendment just deletes the Secretary of State’s powers to issue guidance. Surely this is about local discretion, and local authorities can make up their own minds about how they go about it. However, if the noble Lord seeks to defend the inclusion of that provision, perhaps he might elaborate on the type of issues that would be encompassed by the guidance.

These amendments do not seek to undermine the thrust of the clause. There are issues about how valuable discretionary rate relief might be. There is some evidence that landlords eventually factor the reduced rates into increased rents. There are some issues about authorities undercutting each other; indeed, the result of that can reinforce the inequality of resources that exists at the moment, making those worse, although lower business rates can lower the entry barrier for certain businesses. This is important at the current time because reports, for example in Sunday newspapers and earlier this week, about the challenges that high streets face are very real.

Action on rents may be needed as well as action on business rates. I note the concerns of the right reverend Prelate the Bishop of Exeter, who is going to speak on this issue in a moment. I presume that those concerns are focused on the fact that the wider discretion is allowed and whether that will undermine the support given to existing recipients of the benefit. However, I do think that we have to allow discretion to local authorities in the hope that they will do the right thing but also balance the issue of benefits in the medium and longer term, perhaps forgoing some revenues in the short term. Having explained the thrust of these probing amendments, I look forward with interest to the noble Lord’s reply, particularly to his definition of “fine arts”.

[The Lord Bishop of Birmingham]

My Lords, it might help to progress the debate if I admit that I am speaking on behalf of my right reverend friend the Bishop of Exeter and that I fly under the flag of Birmingham, although I share a Scottish name with the noble Lord opposite.

My right reverend friend the Bishop of Exeter gave notice of his intention to oppose the question that Clause 39 stand part in order to seek an assurance from the Minister on the future of discretionary relief for charities from non-domestic rates. I probe, from these Benches, the Government’s intention in this area.

Currently, under the terms of the Local Government Finance Act 1988, buildings used by charities qualify for a mandatory 80 per cent discount on their non-domestic rates. In addition, as already mentioned, local authorities have discretion to waive some or all of the remaining 20 per cent. Clause 39 deals with the exercise of that discretion. The clause appears to be largely a simplification measure. It removes a series of detailed conditions that must currently be applied when deciding whether to grant discretionary relief. In effect, it appears to replace those detailed conditions with a simple “yes” or “no” exercise of discretion by the billing authority. However, under the terms of new subsection (5A),

“the billing authority may make the decision only if it is satisfied that it would be reasonable for it to do so, having regard to the interests of persons liable to pay council tax set by it”.

We all know that local authorities are currently under severe financial constraints and I am aware of fear among some in the charity sector—here, I declare an interest in several charities with which I am associated as a trustee, president or patron, but hope that noble Lords will excuse me from listing them all now—that the discretionary relief is under threat because cash-strapped councils are looking to make any possible savings that they can. The change proposed in Clause 39 might of course be totally innocuous, but what worries charities is that it might be the green light to cease granting discretionary relief. What does the phrase,

“only if it is satisfied that it would be reasonable for it to do so”,

mean in this situation? Is this what might be called the traditional Wednesbury “reasonable” from 1947 or is it a milder test? My question is very simple: do Ministers expect councils to continue giving discretionary relief or are the Government trying to make it easier for councils to refuse such requests? If the DCLG is trying to make it easier for councils not to give the 20 per cent discretionary relief, how does that square with the big society agenda? Looking to the future, how secure is the 80 per cent mandatory relief?

I very much hope that the Minister can reassure us on both the general intention of this clause and the precise meaning of the words to which I have referred.

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[Lord McKenzie of Luton]

Just so that we can tick off this item as we go along, my amendment to include the business rate would still be qualified by “set by it”. It would not cover NNDR, which are set nationally by the national multiplier, and would come into effect only if circumstances arose in which there was local discretion on the business rate. Just as council tax is set by it the business rate would be set by it. My amendment sought to include those circumstances and the interests that had to be considered when applying discretionary relief. It was not meant to include NNDR as currently constituted.

[Lord Shutt of Greetland]

I understand that this is in order that the national business rate can be relieved by local government saying, “This is a bill that you don’t have to pay or that can be reduced”.

[Lord McKenzie of Luton]

I am sorry. I promise not to interrupt the noble Lord again, well maybe no more than once. I accept that what are being relieved by this provision are NNDR—the business rates—but the clause requires that when making judgments about discretionary relief there must be,

“regard to the interests of persons liable to pay council tax”.

Currently, they are the people who bear the cost of the discretionary relief. Should not the Government localise the business rate so that it is set locally in the future, it is another source of income set by the billing authority, and the interests of the persons involved in that are reasonably taken into account?

[Lord Shutt of Greetland]

My Lords, that may well be the case, but that is for another day. This clause makes it clear that the council tax payer in effect foots the bill, and it is for the local authority to say, “Look, be careful, the council tax payer is going to have to suffer this. Are you certain you are doing the right thing?”.

On Amendment 118B, I, too, have been having trouble with the definition of “fine arts”. All I know is that the “fine” is not the same “fine” that my noble friend Lord Attlee was having difficulty with. It is a different use of the word. The best thing to do is to go back to the Local Government Finance Act 1988. I have it here because I dug it out. The first thing I thought about 1988 was that it was the year after 1987. Actually I am thinking of 1997 and the previous Government, but it was a long time ago. That Act refers to premises,

“whose main objects are charitable”—

which in itself covers many arts organisations—

“or are otherwise philanthropic”—

which may also well cover arts organisations—

“or religious”—

which may also cover arts organisations. It then says,

“or concerned with education, social welfare, science, literature or the fine arts”.

We are exactly where we were before. The Bill does nothing to disturb, in a positive or a negative way, what can be done so that charitable, et cetera, bodies do not have to pay the full rates. I think that is a fair position. Others may well still have to consider the precise recognition of a fine art that does not happen to be charitable or philanthropic, or indeed whether it is an art that does not happen to be charitable or philanthropic, but many people will find a way of discovering that they are charitable or philanthropic. There is no reason why a local authority could not give grant relief to any arts organisation, provided that it considers the interests of council tax payers and fund the relief itself.

Under Amendment 118C, there would be no statutory duty on authorities to have regard to any guidance. If the Secretary of State chooses to issue guidance, it is likely to be largely administrative in nature, covering such matters as state aid issues and the relationship between billing authorities and precepting authorities. Such guidance may well be welcomed. Of course, authorities would only have to have regard to the guidance; they would still be able to grant relief in accordance with the law as they see fit.

I hope that I have responded to those three amendments and, indeed, the major matter of the integrity of the position on rate relief that remains for all sorts of charitable and other bodies. Therefore, I trust that the noble Lord will be able to withdraw his amendments and, indeed, that we will be able to stick to this clause.

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[Lord McKenzie of Luton]

I am very grateful to the Minister for his full explanation and for dealing with these points. In particular, he reassured me and, I am sure, other noble Lords—I apologise to the right reverend Prelate the Bishop of Birmingham for referring to him as the Bishop of Exeter—that there is no change to the existing system of mandatory relief and sharing costs for the current categories of relief that are shared between government and the local authority. That is a very important thing to have on the record. I do not think, with respect, that the noble Lord has fully dealt with the point—although I do not propose to pursue it further—about having to include the prospect in the future, because if we had a local business rate, then, in a sense, they are excluded from these provisions and I am not sure that that is very wise.

I accept that the term “fine arts” is not new—it has been used before—but I would hate that definition to exclude circumstances that, in the modern era, with the development of arts over the years, was not necessarily thought of when these definitions were established. However, I do not think that this is the most important matter that we are going to debate in the Bill. I very much take his point about guidance. He reminded us, of course, about the issues of state aid: that discretionary relief could amount to state aid. It is for individual local authorities to work their way through that treacle, that minefield. That could, in itself, be quite a significant deterrent, but I can see that local authorities would welcome some guidance and help from central government. I beg leave to withdraw the amendment

Amendment 118A withdrawn.

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Moved by

[Lord McKenzie of Luton]

118D: Clause 40, page 36, line 26, at end insert—
“( ) A billing authority in England must promote the opportunities provided by small business rate relief.”

[Lord McKenzie of Luton]

The thrust of Clause 40 is to automate the small business multiplier to improve uptake of the small business rate relief. We support this, but there are two components of the relief. Fundamentally, it is obtained by a small business multiplier—essentially the rate of tax—which is applied to the rateable value of a property, but, additionally, properties with rateable values of less than £6,000 are entitled to a further 50 per cent relief, with properties between £6,000 and £12,000 getting tapered relief. Currently, before the change proposed in the clause, the benefit of the multiplier and the further relief depend generally on a business occupying only one property as well as falling within the rateable value thresholds. In addition, a business has to make an application to that effect.

To make eligibility more automatic, the provisions of Clause 40 do away with the requirement for a business to make an application, and for the purpose of the small business multiplier, it is no longer necessary for a business to occupy just one property. However, for the further discounts to apply, it is necessary for the business to occupy just one property. Clearly, this latter component cannot be delivered automatically, and our amendment seeks to address this quite narrow and particular point. There is no formal requirement to make an application and, according to the impact assessment, it is left to each authority to determine how it goes about identifying those who are eligible. In essence, we consider that there should be an ongoing obligation for billing authorities to promote the small business rate relief. Noble Lords will be aware that the amendment has the backing of the FSB. Authorities will be helped in this by having on record prior applications concerning eligibility based upon single property occupancy. Noble Lords will be aware that the benefit of the relief is met by increasing the multiplier on other properties, so it is not met by government, but by other occupiers of hereditaments. I trust the Minister will be able to support this modest amendment. It is not a cost to government.

I shall close with two questions. Removing the requirement for single occupancy for the small business rate multiplier will lead to large as well as small businesses being able to benefit. Before, single property occupancy was equated with a small business, but now you can occupy lots of low rateable value property and still benefit from the relief. Have the Government made any estimate of the additional cost associated with large businesses now being able to access the benefit of this relief? Is single occupancy judged on an individual company basis, or are there rules which require matters to be dealt with on a group basis? I shall be grateful if the Minister is able to deal with those points. I beg to move.

[Lord Shutt of Greetland]

I thank the noble Lord for moving this amendment. Authorities are already under a statutory duty to provide information about small business rate relief with bills every year, and last year, we also requested authorities to write to all ratepayers with rateable values below £12,000 to remind them that they may be eligible for the relief. Take-up of the relief is already high, and the changes we are making will be able to push it even higher.

This amendment would therefore just place another unnecessary duty on authorities, which is something to which this Government are strongly opposed, and it would be one which central government would have to fund, so I cannot agree the amendment as such.

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It is intended to implement the measure from 1 April 2012. As part of this measure, secondary legislation will be amended to ensure that ratepayers below the £18,000 rateable value threshold—£25,500 in London—will have their bills calculated using the small business multiplier regardless of the properties that they occupy. I may end up having to write to the noble Lord. I have a note that the cost will be an additional £20 million if all ratepayers claim the relief to which they are entitled, and a further £20 million once all bills for businesses below the thresholds are calculated using the small business multiplier. This will add only marginally to the supplement. There may be points raised by the noble Lord, Lord McKenzie, later in his remarks that I shall need to reply to in writing, but this is what I am sighted on at the present time.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for that response. It would be helpful if he could write with some of the numbers so we have some clarity on the record. If some regulations are coming through shortly perhaps we will have another time to dip into this. I do not know whether they are affirmative or negative but one way or another we will try to get a debate around them.

I simply do not follow the point about imposing an extra burden on local authorities. If they are promoting the small business rate relief at the moment, having a provision in the Bill that requires them to do it does not seem to be an extra burden, but that is a matter for another debate. I beg leave to withdraw the amendment.

Amendment 118D withdrawn.

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[Lord Tope]

My Lords, I am grateful to the Minister. It is indeed sufficient.

[Lord McKenzie of Luton]

Does the noble Lord have a figure for the extent to which those who are getting the benefit of the removal of the imposition of backdating under the eight-year agreement have already discharged in whole or in part their obligations?

[Lord Shutt of Greetland]

My Lords, I have several papers here but that figure is not within them. I imagine this was raised when we discussed this a year or two back. However, I will write to the noble Lord and see that a copy of the letter is placed in the Library.